Supplier Scrap Cost

I work for Quality on a Medical Device Company that does contract manufacturing with customer directed suppliers.

There is an expectation that the Contract Manufacturing site does not pay a penny for defects coming from suppliers, revenue is thight and what could be considered small money on other type of environments does have an impact to the bottom line on this operation.
There is an expectation from operations that on individual bases what comes from production runs as scrap from supplier defect is raised as a NCR; we are talking about few units multiplied by different part numbers/lots, by day, that is something that can´t be really managed efficiently causing a backlog of material pending quality evaluation to occur.

I get the need to avoid scrap coming from suppliers but I am having a hard time to figure out a way that is manageable. I can´t imagine fighting for 5 units under a NCR, or hundreds of NCR´s on this case... on the other hand, piece by piece, cost of scrap builds up.

Do you have any suggestions on the topic? have you had into a similiar situation? how have you manage it?
I was thinking about opening a SCAR based on scrap trends? but I have never seen something like that done
is there a way to back charge suppliers for accumulated defects found at production?
Do you have any experience or suggestions on a situation like this? I very much appreciate your thoughts on this.
 

Jen Kirley

Quality and Auditing Expert
Leader
Admin
Welcome to The Cove! I am sorry for the delay in this response.

I do see SCARs issued based on NC trends. That is, items we receive that are nonconforming. If suppliers have internal scrap we can't see then no NCR is issued.

I have seen it addressed by focusing on:
  • Items giving the most pain from loss of inventory due to defects (work stoppage, customer complaints, missed shipments on our end)
  • Items repeatedly being discovered non-conforming
    • First SCAR is a "medium risk" if there is no work stoppage pain or customer complaint. Containment and correction only.
    • Repeats or a large number of defects results in a High level SCAR - containment, deep dive root cause, corrective and preventive actions for issue, detection and system; effectiveness check is enforced.
  • If there are a lot of occurrences of a type of issue, such as labeling, then collect data on that and use the SCAR to drive resolution to the problem so fewer instances will occur. The Pareto principle.
  • Work with the supplier to avoid superficial fixes.
  • Make a larger type of improvement project which focuses on systemic improvements that will support correcting the issue.
  • Consider assisting with equipment if the issue is important enough. We get what we are willing to pay for.
  • Audit the supplier if it helps.
  • Take the "long view" to improvement; changes in how things are done can take a long time.
I have seen this approach drive down plant-wide defect rates over time.

I hope this helps.
 

Ann MD

Registered
I work for Quality on a Medical Device Company that does contract manufacturing with customer directed suppliers.

There is an expectation that the Contract Manufacturing site does not pay a penny for defects coming from suppliers, revenue is thight and what could be considered small money on other type of environments does have an impact to the bottom line on this operation.
There is an expectation from operations that on individual bases what comes from production runs as scrap from supplier defect is raised as a NCR; we are talking about few units multiplied by different part numbers/lots, by day, that is something that can´t be really managed efficiently causing a backlog of material pending quality evaluation to occur.

I get the need to avoid scrap coming from suppliers but I am having a hard time to figure out a way that is manageable. I can´t imagine fighting for 5 units under a NCR, or hundreds of NCR´s on this case... on the other hand, piece by piece, cost of scrap builds up.

Do you have any suggestions on the topic? have you had into a similiar situation? how have you manage it?
I was thinking about opening a SCAR based on scrap trends? but I have never seen something like that done
is there a way to back charge suppliers for accumulated defects found at production?
Do you have any experience or suggestions on a situation like this? I very much appreciate your thoughts on this.

I work as a Quality manager in a different industry (we design apparel and footwear, manufacture it in China, India, Pakistan, Bangladesh, ship to the UK or EU and despatch to various end customers). We require AQL inspection at supplier's end prior shipment, but we also have a small QC team at our end, aiming to sample and check all products coming into the business. Our commitment to inspection ends with AQL sample level. Usually, I'd raise a debit for each piece rejected by the team at FOB x 1.5. I collate the QC data for a month or 2 months, then raise debit for everything within the period. And yes, it looks like 5 pieces don't matter, but in 2 months time you will have 50 and costs are building up, not to mention that it also costs to dispose of the waste. If there is a major QC failure, and Team had to see the stock 100%, we charge the supplier in breach for the man-hours spent on inspection, sorting and reconsolidating the stock. If the batch is unfit for purpose, and is deemed 'Return to supplier', then I'd add all freight costs + duties. The defective stock is sold to market traders at clearance price, but often brands are subject to restrictions and we simply cannot release these to the market. We send to charity or, if with critical faults, we destroy it. I am recently trying to get in touch with companies that recycle textiles, e.g. shredding and making insulation or fillers, but this proves rather challenging. Someone has to pay for all this waste and hidden costs such as transportation, extra work hours, etc., hence the debits.
 
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